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The True Cost of Free Music [CASE STUDY]

While it’s damn near impossible to calculate the life-time value of a fan for an up and coming independent band, the short term gains and costs are easily available. Below, I’ve run through what it looks like to be in an indie band and how free downloads both benefit and hurt our bottom line while trying to make a break in the industry.

I see all too often people thinking that independent bands are somehow making huge amounts of money playing live shows and by distributing their music independently. I’m here to show you that we don’t make as much as you think.

If you don’t care about the nitty-gritty details of how much my band spends/makes, feel free to jump straight to the bottom where I give a nice summary of what money comes in, what money goes out, and how much free music actually costs an artist.

The Band

I (Nick Roberts) started a band called And the Giraffe back in 2009 with my now best friend, Josh Morris, after we met at an orientation meeting for our university. Josh moved to Nashville in 2010, delaying the release of recorded material until August, 2011, when our first record came out. We released a second album in November, 2012.

To date, we’ve had almost 4,000 downloads of our 2 EPs via Bandcamp (I rounded to 4,000 because the actual number is 3989. For simplicity, we’ll call it 4,000). This article isn’t going to be so much about HOW our promotion works and what methods we’ve used to gain new fans, but rather the costs associated with launching a new band and how free downloads affect the business of growth.

Bandcamp Revenues

We use Bandcamp as our primary distribution point for our music. Bandcamp allows us to distribute our music on a “pay what you want” basis.

Anytime someone purchases a physical product from Bandcamp, a download of the music is included in the purchase, so it’s safe to assume that almost 100% of customers who purchase physical CDs, t-shirts, and other merchandise are also included in the 4,000 downloads of the music over the past 18 months.

Revenues: Since August, 2011, And the Giraffe has seen revenues of $2,080 via Bandcamp This INCLUDES both digital sales and physical sales. This EXCLUDES the cost of producing the merchandise.

Digital Revenues: $954

Physical Revenues: $1126

Costs: Each physical product sold has a profit margin of about $1, meaning out of the 125 pieces of physical merchandise sold in the last 18 months, we’ve PROFITED approximately $125.

Bandcamp Share: Bandcamp takes a 15% revenue share of all money that comes through it.

Profit from Sales: $954 + $125 = $1,079 – $1,079(15%) = $917.15

Using Bandcamp’s distribution model, we’ve been able to profit $917.15 in 18 months (About $51/month) from Bandcamp alone.

That also breaks down to $917.15/4000=$0.23/download

Digital Revenues

The other main source of revenue for the band is digital sales through stores like iTunes and streaming via Spotify. While they’re not as profitable as Bandcamp, every little bit counts when you’re talking about growing a new band.

Spotify: Unlike the “bigger” bands who don’t make much from Spotify streaming, the members of And the Giraffe currently retain both publishing and songwriter royalties associated with the music. This means that all of the streaming revenue goes directly into our pockets and isn’t split with a label or any other middle-men.

On average, we make $.0068/stream from Spotify. This number varies wildly depending on the popularity of a song, but looking at last month’s 560 streams via Spotify, the band made $3.78. In the grander scheme, this $3.78 may not seem like a lot, but as said earlier, every little bit counts.

When we’re talking about a few hundred dollars in revenue from digital distribution, it’s less than 1% of profits. We’ll also assume that this money is generated not by people discovering the band, but instead listening to the band because they already know who they are.

iTunes: iTunes is a lot better than streaming. $630 has been paid out through iTunes downloads over the last 8 months. That’s an average of $78.75/month. While I won’t bore you by breaking down month by month who downloaded our singles and who downloaded full albums, it’s about a 50/50 split between people purchasing a full album’s worth of music and people just downloading a single song.

iTunes Fan Breakdown: Each album is for sale on iTunes for $6 (of which iTunes keeps a fairly negligible amount). Because about 50% of those who downloaded music via iTunes bought the FULL album, it’s safe to say $315 (50% * $630) is the result of fan acquisition via full album downloads. The other $315 worth of fans are people who bought singles (at $1 each).

New Fans Via iTunes: 315 downloads via single purchases, and 53 downloads via full album purchases ($315 album revenue/$6 per album = 53 fans who purchased an album). Total iTunes Fans: 368

You may be asking why I’m calling iTunes downloads “new fan downloads.” Here’s the way I look at it. If someone stumbles across And the Giraffe’s music via Bandcamp, they have 2 options. They can either download the music via Bandcamp or use iTunes. If they choose Bandcamp, their download (and any money associated with it) is included in the 4,000 total Bandcamp downloads I mentioned above. If they choose iTunes, their downloads are included in the 368 new fans via iTunes. It might be ignorant to assume, but I’m going to go out on a limb and say that people who download via Bandcamp aren’t going to turn around and download via iTunes afterwards, and vice-versa. That means that anytime someone download via iTunes, they’re a SEPARATE PERSON from the ones who download via Bandcamp.

New Fans vs. Old Fans

Here’s where things get tricky and I’ve definitely OVER simplified this entire section to make the numbers easier to understand and to not blow your brains out with trying to understand the percentage of existing fans vs. new fans.

Since starting And the Giraffe in 2011, we have released 2 EPs (I’ve used the term album and EP interchangeably up to now). These EPs’ combined sales have TOTALED the revenue numbers I’ve outlined above. After the first EP (Something for Someone – August, 2011) approximately 520 people downloaded the new EP (Creature Collector – November, 2012) within the first month of its release. It’s safe to assume that almost all these people were already fans of the band and were downloading the album based on the marketing push behind the album. There were obviously some NEW FANS in this time period, but for simplicity sake, we’ll just say ABOUT 500 people were already fans of the band, and revenues during this time were directly tied to existing fans, not people discovering the band.

What Does This Mean?

Well, looking at the fact that And the Giraffe has 4,000 Bandcamp total downloads, 500 of which were of the new album, let’s say that IN TOTAL, Bandcamp has led directly to an acquisition of approximately 3,500 fans for the band. 3,500/4,000=87.5% new fan acquisition for every download. We can carry that percentage over to the iTunes downloads as well to get an idea of how many new fans came from iTunes downloads and how many came from pre-existing sales and fans.

We said iTunes downloads were by approximately 368 people. 368 * 87.5% = 322 new fans via iTunes.

TOTAL NEW FANS GAINED: 322 + 3,500 = 3,722*

*I’ve said it before and I’ll say it again. These numbers are by no means scientific or 100% accurate, but they do give us a pretty good idea of what we’re working with.

The Cost of Fan Acquisition (Advertising)

Alright, so we’ve talked a lot about how much each fan earns And the Giraffe, but how much does it cost to actually acquire them? Unfortunately, I only have advertising totals for each month, not actual breakdowns of conversion rates for each advertising dollar spent.

Facebook Advertising: $30/month

Youtube Advertising: $15/month

These numbers aren’t constant and some months money is distributed from Facebook to Youtube for a bigger push, and things like flyers and the cost of sending out newsletters comes into play as well. On average though, about $45/month is spent on advertising.

Total advertising spend to date: $855

As another mention, we also engage in “evergreen” advertising efforts that come in the form of album reviews on blogs and mentions via social media sites. This type of advertising can’t be measured in cost, as it was time that was invested to land new followers on sites like Twitter and Facebook, not money. We’ll assume that these blog posts and social media interactions contribute somehow to new fan acquisition, but because the costs are technically non-existent, I can’t include them.

Metrics

Just to give you an idea of how this breaks down with the dollars and cents of everything so we have some figures to move forward with:

Time as a Band: 18 Months

New Fans/Month: 3,722/18 = 206

Gross Profit/Fan: $1,550.93/3,722 = $0.417

Advertising Cost/Fan: $855/3722 = $0.23

Net Profit/Fan: $0.417-$0.23 = $.187

What Does All of this Mean?

If you’ve skipped all of the jargon above (and I apologize for how confusing it is), you’re ready to see what all of this actually means.

On average, every time someone downloads And the Giraffe’s music, we make 18 cents. After all is said and done, every new fan the band has made in the past 18 months has brought a whopping total of 18 cents to us.

Is Free Music Worth it?

There are 2 sides to this coin. Once a fan is acquired, assuming they all stick around to see what we get up to months or years down the road, the initial costs of fan acquisition pale in comparison to the future benefits. Having said that though, earning just $.18 per download for means we have to wait weeks, if not months, to save up enough money to put on another advertising campaign, another show, or another event to promote our music further. Either that, or use our own money to fund the love of the craft (We do this A LOT).

Free music is worth it in the sense that it helps spread awareness about a band quickly. Reducing the barriers to entry definitely has an impact on how well we’ve done and how many others bands have done. But the gains from doing so are very small in the beginning and it takes many more downloads to match the cost of the album from other distribution sources.

If And the Giraffe was to charge the Bandcamp average of $4/album, we’d have to convince 1 person out of 22 that the music is worth paying for. That’s much easier said than done.

Final Thoughts

While labels do take a nice chunk of the change from bands in some cases, the monetary outlay to acquire fans in the beginning of a band’s career can’t be matched by the pockets of labels, both independent or major. Bands work day jobs to supplement their musical income because making fans and getting your music heard when you’re just getting started is EXPENSIVE.

This case study obviously ignores many other costs of being a band (i.e. playing shows, paying royalties to other band members, artwork, etc.), but it hopefully gives fans and bands a realistic perspective of what free music does for the industry and how much bands are actually making every time you download their music in one way or another.

In the case of And the Giraffe, reaching fans is much more important to us than the money they’re bringing in. Music is a labor of love and while the short term costs may be difficult to overcome, the lifetime value and connection with fans who resonate with our music and who may not be able to pay for it otherwise, outweigh any of the short-term financial challenges that face us.

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2 Comments

Great Article Nick! Thanks for sharing! I am an independent artist as well, I couldn’t agree with you more when you started how expensive it is for an artist to share their music with others, but it is truly a labor of love! …. I have a question for you, with distributing your music via iTunes are you going through a third party, such as Cdbaby or Tunecore? I thank you for your time and I look forward to hearing from you!

CDBaby. It made the most sense when we were starting out because we paid one up front fee and kept 91%. Now that we sell more through iTunes though, Tunecore technically has a lower rate over say, 5 years.